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Presentation to the Financial Community
1
2002: Merloni is a well established #3 with an extraordinary growth trend
Market (vol)
Merloni (vol)
Merloni (€)
Market (vol)
Merloni (vol)
Merloni (€)
BSH
Electrolux
Merloni
Whirlpool
Candy
Others
- 1.5%
8.1%
11.8%
11.6%
15.7%
17.9%
EASTERN EUROPE 2002
WESTERN EUROPE 2002
Market (vol)
Merloni (vol)
Merloni (€)
GREATER EUROPE 2002 lfl
1.1%
10.7%
14.0%
MARKET SHARES (Volume, Greater Europe 2002)
16.6% + 0.1%
16.2% =
14.9% + 0.9%
9.7% - 0.6%
4.6% +0.2%
38.0% - 0.6%
∆ ‘02 vs ‘01
Changing the IndLand
scape
About Innovatio
n and Execution
External – Impact and Trends
Why Merloni?
Market vs. Merloni LfL Growth, %
Market vs. Merloni LfL Growth, %
Market vs. Merloni LfL Growth, %
2
Merloni is leveraging scale and agility and making road both in volume and value
69.9 73.8 73.4 73.9 75.5
Total Demand Merloni’s Volumes Growth
EE
WE
E E
Retail Prices Merloni‘s Avarage Unit Revenue
E E
Merloni’s Way
1. Continuous offering renewal
2. Reduced time to market
3. Customer intimacy advances
4. Leveraging leadership in
eastern markets
Merloni’s Way
1. Fast product cycle
2. Better performance and
value proposition to clients
(digitalization, features, …)
3. Efficient communication via
focused brand portfolio
12.4
8.97.16.5
1999 2000 2001 2002 2003
(Mio Units) (Mio Units)
(1998 index)(1998 index) 107.5103.9
101.7100.0
1999 2000 2001 2002 2003
100.9100.0 100.6 100.6 100.9
1999 2000 2001 2002 2003
56.9 58.8 58.8 57.8 58.0
12.9 15.0 14.6 16.1 17.5
1999 2000 2001 2002 2003
Changing the IndLand
scape
About Innovatio
n and Execution
External – Impact and Trends
Why Merloni?
3
• Quality:ü CAGR (00-02, Rev) = 20%ü CAGR (00-02, EBIT) = 42%
• Basis:ü Acquisition choice and
integration capabilitiesü Good mix of organic and
acquisition growth
Growth = focused organic growth + good acquisitions + fast integrations
Organic Growth
Organic Revenues’ Growth,M EUR
1999 2000
1,419
2001 2002
182
138
240
CAGR 11.7%
• Maintaining momentum
• Optimizing scale effects
• Exploiting synergies
• 12 acquisitions in 25 years
• 1/3 international
• Experience in acquiring and
integrating
STARStinol
Indesit
Sch-oltes
1977 1980 1982 1986 1987 1988 1989 1992 1995 1995 2000 2001
Fri-Sado
Smeg Colston
Philco
Fab-Por.
Pekel
New World
: International Acquisitions: Italian Acquisitions
Hot-point
STARStinol
Indesit
Sch-oltes
1977 1980 1982 1986 1987 1988 1989 1992 1995 1995 2000 2001
Fri-Sado
Smeg Colston
Philco
Fab-Por.
Pekel
New World
: International Acquisitions: Italian Acquisitions
Hot-point
AcquisitionsHistory
Acquisitions Total Growth 2000 - 2002
53%47%Organic
Acquired
Changing the IndLand
scape
About Innovatio
n and Execution
Internal – Meloni Perspective
Why Merloni?
The “One Single Company” concept (1 organization, 1 structure, 1 manufacturing network, …)
enables Merloni to realize synergies from acquisitions fast and efficiently
4
The East/West gap represents a significant opportunity for Merloni
Volumes (mil.)
‘98 ‘03 ‘05
55.0 58.0 60.0
GDP (index) 100.0 110.5 116.0
Per Capita GDP (€) 21,800 24,000 25,100
House Holds (mil.) 154 156 157
Urbanization 78% 79% 80%
MODERATE GROWTHIN A MATURE MARKET
‘98 ‘03 ‘05
12.4 17.5 20.0
100.0 114.8 136.0
3,300 3,700 4,500
111 112 114
67% 69% 71%
FAST GROWTH IN AN EXPANDING MARKET
Source: Company estimates on IMF & Freedonia Group data
West Europe: 385 mil people East Europe: 415 mil people
Volumes (mil.)
GDP (index)
Per Capita GDP (€)
House Holds (mil.)
Urbanization
Changing the IndLand
scape
About Innovatio
n and Execution
External – Impact and Trends
Why Merloni?
reduced volatility for the 10 East European countries scheduled to join the EEU
reduced volatility for the 10 East European countries scheduled to join the EEU20032003 upside +
5
Growth Frontiers: Merloni stays focused on Europe
1. High growth2. Low penetration3. Attractive potential market size
East Europe
Built In Segment
Dryers and Dishwashers
Merloni continues
to match
decisions related
to growth with its
capabilities and
opportunities
Choices in Growth
Changing the IndLand
scape
About Innovatio
n and Execution
External – Impact and Trends
Why Merloni?
a)
b)
c)
1. High value2. Repositioning opportunities3. Innovation potential
1. Low penetration in mature markets2. Cross-production opportunities (Merloni-GDA)3. Needed scale to impact
6
The Built In segment focus is showing results in growth and market share gains
Changing the IndLand
scape
About Innovatio
n and Execution
External – Impact and Trends
Why Merloni?
Built In Market Shares (vol)
BSH
Electrolux
Merloni
Whirlpool
Miele
22.2% -0.3%
20.7% +0.1%
14.1% + 0.9%
10.1% - 0.6%
3.8%% -0.1%
∆ ‘02 vs ‘012002
Market (vol)
Merloni (vol)
Merloni (€)
0.0%
9.1%
13.1%
Built In Growth (CAGR 2000-2002)
Market vs. Merloni LfL Growth, %
• Product innovation focus is an advantage of
Merloni in the Built In segment.
• System/collection value propositions
catalyse premium products.
7
Household appliance penetration, % West Europe 2003
Low penetration of dryers and dishwashers represents another significant opportunity
Changing the IndLand
scape
About Innovatio
n and Execution
External – Impact and Trends
Why Merloni?
143.3
94.1
28.4
98.4
39.8
0
20
40
60
80
100
120
140
160
Fridges Washers Dryers Cookers Dishwashers
• Additional focus
• Included in Built In “View Line” systems
approach
• GDA synergies in cross-production:
• GDA dryers plant at Yate
• Merloni dishwashers at None
Dryers and Dishwashers
Source: Freedonia Group data
8
New product development is a significant profitability lever at Merloni
MERLONI PROFITABILITY LEVER
EBIT
Significant advantages- Scale in research and development- Lower promotion costs- Tactical advantage and price premiums
EBIT/Revenues, %
2000 2001
7.1%8.2%
MERLONI PROFITABILITY LEVER
GROSS MARGINS
• Scale and momentum: new features at same, or
lower costs
• Scope: horizontal platform architectures
New products contribution, %
2002 2003
28% 44% 57%
2001
MERLONI PROFITABILITY LEVER
REVENUES
• Redefining mix – repositioning
• Commanding price and increasing volumes
New products contribution, %
2002 2003
30% 44% 57%
2001
New products: products launched in the course of the year, or during the previous year (average age 18 months)
Changing the IndLand
scape
About Innovation
and Execution
Why Merloni?
New Product Development
E
E
9
DevelopmentResearch
We’re focusing on breakthroughs on both ends of innovation: research & development
Washers Dishwashers Cookers Fridges
• Cost reduction: - 50%
• Standardization: from 300 to 150 parts
• Quality improvement: - 25% interventions
• Time to market: - 30%
• Suppliers: from 12 to 4
New design and organisation: 1 digital platform
• Dedicated technology
research company.
• Around 30 patents in
interconnectivity technology.
• 120 engineers.
• Technological partnership
with MIT.
and
Single horizontal platform
Changing the IndLand
scape
About Innovation
and Execution
Why Merloni?
New Product Development
10
Vertical product architectures are the pillars of efficient and responsive development
1 platform 2 platforms1 platform 3 platforms
Washers Dishwashers Cookers Fridges
Vertical Platforms
Cost
Speed
Reduced capital investments
Component standardsReduced manufacturing cost
Consumer needs Positioning
Focused factory
Revenues
Costs
ROI
ROA
Changing the IndLand
scape
About Innovation
and Execution
Why Merloni?
New Product Development
The bottom line
11
Improving value proposition through continuous management of technology
Changing the IndLand
scape
About Innovation
and Execution
Why Merloni?
New Product Development
TechnologyTechnology
Thermodynamic
Fluid Dynamics
Induction technology
Acoustics
Three-phaseDed
icat
ed/v
ertic
al r
esea
rch
Horizontal research
Dig
ital
tec
hn
olo
gy
• Digital
• SW/HW
• Sensors and virtual
sensors
InnovationInnovation
Ice Party
Woolmark
Cooling A++
Washing A++
New Hobs
Super Silent
Value to consumersValue to consumers
Sensor Control
Safety
X
X
X
Comfort
X
X
X
X
X
Perfor-
mance
X
X
X
Efficiency
X
X
X
X
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Examples: Technology for Consumer ValueExamples: Technology for Consumer Value
Super silent and Woolmark: advances in comfort through electronic management
Su
per
Sile
nt dB Sound
0 threshold of hearing
10 pin dropping at 10 m
20 soft whisper
30 library
40 quiet conversation
50 normal conversation
60 a busy office
70 vacuum cleaner
80 inside a small car
dB Sound
0 threshold of hearing
10 pin dropping at 10 m
20 soft whisper
30 library
40 quiet conversation
50 normal conversation
60 a busy office
70 vacuum cleaner
80 inside a small car
dB Sound
0 threshold of hearing
10 pin dropping at 10 m
20 soft whisper
30 library
40 quiet conversation
50 normal conversation
60 a busy office
70 vacuum cleaner
80 inside a small car
dBdB SoundSound
00 threshold of hearingthreshold of hearing
1010 pin dropping at 10 mpin dropping at 10 m
2020 soft whispersoft whisper
3030 librarylibrary
4040 quiet conversationquiet conversation
5050 normal conversationnormal conversation
6060 a busy officea busy office
7070 vacuum cleanervacuum cleaner
8080 inside a small carinside a small car
Changing the IndLand
scape
About Innovation
and Execution
Why Merloni?
New Product Development
Wo
olm
ark
Merloni is the first washing machine producer to have been
awarded Woolmark (world-wide textile organization)
certification for washing of wool, delicates and knits.
13
2002/03E +30%
Further increases in new product investments and introductions in 2003
2001 2002 2003 E
Product Investments
7680
104[mln €]
Changing the IndLand
scape
About Innovation
and Execution
Why Merloni?
New Product Development
14
We are increasing Ad. & Promo. investments on a focused brand portfolio
7586
101
2001 2002 2003E
(*) Committed
… and economies of scale
(mil €)
3.8% 3.5% 3.4%** Mktg /Revenue
Others160 Brands
Whirlpool8 Brands
Merloni6 Brands
Electrolux24 Brands
BSH13 Brands
Average Share of Market per Brand
Staying focused in a fragmented market
Advertising & Promotions:investing on brand leadership
(*)
Leveraging economies of scope ...
Advertising and Promotion Investments
1.23
2.45
0.67
1.48
0.27
~ 230 Brands on display (WE)
16% CAGR
Changing the IndLand
scape
About Innovation
and Execution
Why Merloni?
Marketing and Sales
Pie chart: Market Shares (vol) **3.4% in 2003 assuming minimum revenues of 3,000 MEUR
15
Merloni is collaborating with retail on supply chain and store management
GOAL:
Excelling in service at lower costs (for both partners)
PROJECTS:
1. Virtual stock/warehouse (C2C)
2. Vendor managementinventory and shared management system
GOAL:
Revolutionizing white goods sales at store level
PROJECTS:
1. Category Management
2. In store customerexperience
3. Supporting services
SUPPLY CHAIN SELL OUT
Changing the IndLand
scape
About Innovation
and Execution
Why Merloni?
Marketing and Sales
Additional distribution efficiencies and advances in consumer intimacy
16
GDA INTEGRATION
• ON THE RIGHT TRACK• SYNERGIES TARGET IMPROVED
FROM € 19 ML TO € 23ML• TIMING CONFIRMED
17
Service
20042003
INDUSTRIALPERFORMANCE
INTEGRATION
NEW PRODUCTS
Blythe Bridge Industrial Performance
Peterborough Industrial Performance
Purchasing
Products exchange
Kinmel Park New WM+WD
New Tumble Dryer
GDA Integration Project Portfolio
IMPROVEMENTS
Quality
Distribution & Supply chain
Finance
IT Integration 100%TOTAL
On track
2003 &
2004
20%Improvements
A littlebit
ahead
Jul 03:1st DW
Aug 03:1st Dryer
40%Integration
On track
200320%IndustrialPerformance
On track
From2Q04
20%NewProducts
StatusBenefit peak
% synergies
ProjectNET SYNERGIES 2003-2004: € 23 ML
18
New target increased by 15%
2003 Synergies trend
€ ml
0
2
4
6
8
10
12
Old target New target
1Q03 2Q03 3Q03 4Q03
19
FINANCIAL HIGHLIGHTSFINANCIAL HIGHLIGHTS
11stst Quarter Quarter 20032003
MERLONI ELETTRODOMESTICIMERLONI ELETTRODOMESTICI
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FINANCIALSFINANCIALS-- CONSOLIDATED PROFIT & LOSSCONSOLIDATED PROFIT & LOSS
[€ ml] 1Q03 1Q02 ∆% 2002
Net sales 703 495 42.0% 2,480
EBITDA 78 52 51.0% 318
% on sales 11.1% 10.4% 12.8%
D&A 36 23 58.2% 115
% on sales 5.0% 4.6% 4.6%
EBIT 42 29 45.4% 203
% on sales 6.0% 5.9% 8.2%
Financial Income (5) (3) (23)(expenses)
Extraordinary income (1) 0 (14)(expenses)
PBT 36 26 41.7% 166
% on sales 5.2% 5.2% 6.7%
Taxes NA NA (58)Tax rate % 34.8%
Net profit NA NA 107
21
FINANCIALS FINANCIALS –– CONSOLIDATED BALANCE SHEET CONSOLIDATED BALANCE SHEET
762
470*
66%
292
762
(231)
3%
93
900
1Q03
43%82%% gearing
703716TOTAL SOURCES
521401*Total shareholders’ equity
181315Net financial position
703716NET INVESTED CAPITAL
(239)(180)Provisions, funds and other liabilities
1%2%% on net sales (rolling 12 months)
1638Net working capital
926858Total fixed assets
20021Q02€ ml
* Gross of tax
22
30357-13Operating free cash flow
-368-216-11CAPEX
20021Q02*1Q03 *€ M
-30-164-111TOTAL CASH FLOW
57-5-87**Others
-22--Dividends
-65-159-24Operating cash flow
5822
36-28
-77-8
Change in NWCChange in others
2224972Gross cash flow
1152336D&A
1082636Net income
Cash flow statementCash flow statement
*For the three month period net income is gross of tax** Included € 68 ml of change in shareholders capital due to the acquisition of an additionl 10% of GDA
23
2003 Outlook2003 Outlook
• Sales ≥ € 3.0 bn
• ROS improves with respect to previous year
• Gearing ratio below 40%
2003 OUTLOOK